How the Newest Generation of Credit Cards Protects Your Information From Getting Stolen

Have you had your credit card info stolen recently? You’re not alone. It’s happened to me a couple of times in the past year, and it’s annoying as hell. Thankfully, credit card companies are finally tackling this issue head on, with technology that’s just now reaching the U.S. in full force.

If you’ve gotten a credit card in the mail recently, you’ve probably noticed it has a little chip on it. Or maybe you’ve heard of people talking about “chip and PIN” technology. These chip cards—also known as EMV cards (which stands for “Europay, MasterCard, and Visa”) are designed to cut down on credit card fraud. Many countries in Europe have had this technology for a while now, but it’s finally taking hold in the U.S. This is a good thing, since last year, the U.S. accounted for 72 percent of all credit card data breaches in the world. Here’s how these new cards work.

Forget the Stripe. You’ll Have a Chip

With a traditional credit card, the data associated with your magnetic stripe doesn’t change. If someone accesses it, they have access to your credit card info until you cancel it and get a new one. With this new chip technology, every time you use your card, the chip creates a code unique to that transaction. If a hacker steals that code info, it’s useless. Other countries have been using chip cards for years, and it’s been really effective in bringing down fraud.

You’ll Still Use Your Signature, For Now

Other countries have been using “chip and PIN” technology with these new cards. In addition to having the chip, this technology requires you to remember a PIN for each credit card you use. In the States, most new cards won’t come with required PIN numbers. We’re using a “chip and signature” method for now, which means we’ll use our signature to close the transaction, like we did with our old cards. Sushil DaSilva, co-founder of Highline Software, says we will eventually use PIN verification, probably within the next few years. According to him, issuing banks wanted to roll out the chip technology first, then introduce the PIN method once consumers get used to the change.

Yes, There are Some Drawbacks

Our “chip and signature” method could pose a problem if you’re visiting a “chip and PIN” country. Since other countries use PINs to verify purchases, you might not be able to process your card at some overseas merchants. It’s uncommon, but still something to keep in mind if you’re traveling. Some travelers request a PIN from their credit card issuer to use for cash at ATMs, but this is not the same PIN. As one expert puts it over at CreditCards.com:

“If I go to France, where chip-and-PIN is sometimes the only choice in these terminals, then many times I’m going to need to get a new card.”

You should be able to use the PIN you requested at an ATM for a cash advance, but not for a purchase at, say, a train kiosk that requires a chip-and-PIN card to make a purchase.

Unfortunately, if you’re traveling without a PIN card, other than using cash, your only other option would be getting a new “chip and PIN” card. Most machines, however, will simply accept your signature.

Also, since most chip cards won’t require a unique PIN, if a thief steals your physical chip card, they could probably still easily use it anywhere. Thieves could still use your EMV card for online purchases, too. Since you don’t pay using a terminal for online transactions, all a hacker needs is your credit card number, expiration date, and three-digit security code. Someone could get this info if they get hold of your physical card, but it’s impossible for them to get this info from hacking a chip transaction, since the code is unique.

DaSilva points out why the EMV technology is still useful, though:

Physical card theft represents fraction of card fraud. The real problem is that magnetic stripes can be copied and cloned at will.

Basically, this technology will protect against cloning and copying your card. Since each transaction is unique, thieves won’t be able to skim your data and replicate it.

Instead of Swiping, You’ll “Dip”

Instead of swiping your card, you’ll now insert it into a machine. Some retailers call it “dipping.” You might have already seen this technology at some stores already. Once you dip, you leave the credit card in the terminal until your transaction is complete. Some EMV cards might also support NFC technology, which means you can just tap your card to pay.

The rollout of EMV will happen gradually, so you can still use your EMV card at retailers that haven’t updated their terminals and are still using the old swipe method.

Unfortunately, the Full Transition Will Take a While

The major card networks (Visa, Discover, MasterCard, and American Express) are responsible for this shift, and they’ve given banks and retailers a deadline of October 1st to start issuing and accepting the new technology. If they don’t, the retailers or issuing banks will be on the hook for any fraud transactions.

It’s a soft deadline, though, so don’t worry if you haven’t gotten a new card in the mail. Retailers and banks are introducing this somewhat gradually, and experts say it might take a few years before we all start exclusively inserting our cards instead of swiping them. MasterCard product expert Carolyn Balfany told the Tech Times she expects about 65 percent of cards to be equipped with chips by the end of 2015, with half of merchants upgraded. According to Creditcards.com, debit cards will roll out at a slower pace. Experts expect that 96 percent of debit cards will switch to this technology by 2017.

If you already have a chip card and you’ve been to a Target or Costco recently, you’ve probably tried this new technology. It’s simple enough to use, so it shouldn’t take too long to get used to “dipping” over swiping. It’s a small price to pay for tighter security.

Illustration by Tina Mailhot-Roberge.

This article was written by Kristin Wong from Lifehacker and was legally licensed through the NewsCred publisher network.